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TMI Blog2017 (2) TMI 640X X X X Extracts X X X X X X X X Extracts X X X X ..... f perimeter road, treated by the A( ) as capital expenditure, without considering the fact that the entire expenditure has been incurred for complete renovation and replacement of old assets". 2."On the facts and in the circumstance of the case and in law, the learned CIT(A) erred in deleting the disallowance of refurbishment expenses in the nature of civil works amounting to Rs. 24,24,34,541/treated by the AO as capital expenditure, without considering the fact that the entire expenditure has been incurred for renovation, expansion and modernization of the Airport". 3."On facts and in the circumstance of the case and in law, the learned CIT(A) erred in deleting the addition of Rs. 4,43,32,547/- made by the AO u/s. 40(a)(ia), without appreciating that the assessee was liable to deduct tax tinder various sections i.e. 194J, 194C and 195 but had failed to do so". 4."On the facts and in the circumstance of the case and in law, the learned CIT(A) erred in deleting the addition of Rs. 4,43,32,547/- made by the AO u/s. 40(a)(ia), without appreciating that the assessee's tax auditors had pointed out that the said amount is disallowable". 5."On facts and in the circumstances of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wards strengthening of the perimeter road of the Airport premises. The AO observed that impugned expenses were actually part of capital work in progress and that work done on perimeter road was meant for complete renovation of the old assets and therefore it cannot be treated as revenue expenditure. It was also observed that assessee should not have adopted different positions for the income tax purposes and for accounting purposes. In view of all these reasons, this amount was disallowed. 4.2. Being aggrieved, the assessee filed appeal before the Ld. CIT(A) wherein detailed submissions were filed. The submissions made by the assessee can be summarized as under: i. The expenditure of Rs. 74,01,325/- on strengthening of perimeter road was to maintain, preserve an existing asset, ii. No new asset has been created, iii. No advantage of enduring nature has been obtained, iv. The expenditure has been incurred to upkeep, preserve and maintain the existing assets, v. The asset was already in use earlier but because of its wear and tear with the passage of time needed repairs, vi. The question of allowability of a particular expenditure either as capital or revenue has to be judged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... substantially replacement of existing equipment and treatment given in books of accounts could not decide the nature of expenditure. The expenditure would be capital if the expenditure has been incurred to create new assets. However, it will be revenue in nature, if incurred merely in facilitating assessee's operation or enable assessee's business to be carried on effectively, while leaving capital untouched. The similar view is taken by the Hon'ble Apex Court in the case of CIT V/s Associated Cement Companies Ltd. (1988) 172 ITR 257 (SC). If the expenditure incurred does not bring into existence any new assets but only facilitate operation to ensure that the existing runway is maintained properly ensuring safety of the Aircraft or passenger and also Airport premises and no new asset has come into existence the expenditure is revenue in nature. We are of the considered view that it cannot be said that by incurring the expenditure details given hereinabove, a new asset has come into existence giving rise to the assessee of enduring benefits. There is no dispute to the fact that the said runway /Airport premises does not belong to assessee but belong to "AAI" and the assessee is requ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce is called for in the decision of the Ld. CIT(A) and therefore, same is upheld in view of detailed and well reasoned findings of the Tribunal for A.Y. 2007-08. Thus, Ground No.1 is dismissed. 5. Ground 2 : In this ground, the Revenue has challenged the action of the Ld.CIT(A) in deleting the disallowance of refurbishment expenses in the nature of civil works amounting to Rs. 24,24,34,541/- which was treated by the AO as capital expenditure. 5.1. It was noted by the AO during the course of assessment proceedings that the assessee had claimed deduction of aforesaid expenses as revenue expenses on account of refurbishment expenses of Terminal 1A and 2C of the Airport. It was further noted that in the return of income it was stated by the assessee that though these expenses were capitalised in the company's books of account, however, in the return of income, these expenses have been claimed as revenue expenses. It was explained by the assessee that these expenses were in the nature of civil works undertaken to improve the aesthetics of these terminals. The assessee submitted detailed explanation to justify the same as revenue expenses but the AO was not satisfied and disallowed the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee has made this claim by filing revised return of income, therefore, it shows that it was an afterthought claim on the part of the assessee. It was further objected to by the AO that the assessee should not have adopted different stands for income-tax purposes and for accounting purposes. It was also observed by the AO that since the assessee was responsible only for the development of new airport therefore, most of the expenses incurred under this head were capital in nature. 5.5. Per contra, the justification given by the assessee was that the expenditure was made to meet the aesthetics of the existing operating terminals. Further, the expenditure was to maintain and preserve an existing asset and no new asset was created. It has also been contended that no advantage of enduring nature has been obtained by the assessee and more so, when the premises in question did not belong to the assessee. The asset was already in use, but because of its wear and tear with paucity of time it needed repairs. It was also strongly contended that the issue of characterization of an expense as revenue expenditure or capital expenditure has to be done independently, irrespective of its treatm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was not deducted at source by the assessee. The assessee was asked to furnish item-wise details of such provisions with actual date of payment. The assessee furnished list of such expenses as well as explanation for non deduction of tax at source. But the AO in the assessment order held that the entire expenditure was liable for deduction of tax at source under various sections, viz. 194C, 194J and 195, and since the assessee failed in deducting tax at source, the AO disallowed the provision for the expenditure. 6.2. Being aggrieved, the assessee filed appeal before the Ld. CIT(A). The assessee filed detailed written submissions before Ld. CIT(A) wherein it was inter-alia submitted that these expenses were provided for in the book of account on best estimate basis. No invoices were raised, quantum of expenditure was not definitely ascertained, and therefore amount of expenses was claimed on most conservative basis. Since invoices were not raised, neither any credits nor any payments were made in the name of any particular vendor, therefore, provisions of section 40(a)(ia) of the Act were not applicable since tax was not required to be deducted on the amount of this provisional exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the payees, etc. It has been observed in the order by Ld. CIT(A) that whenever payments are actually made against these provisions, TDS is deducted as was stated by the Ld. Counsel. But, what are the precise facts in this regard has not been discussed in the order. No details are available or discussed by the Ld.CIT(A) regarding various aspects, e.g. when these expenses were actually incurred, in whose name these are finally credited, who are the actual payees, when the payments were made actually and whether the TDS was deducted at the time of making of payments or not? Nothing has been brought out on record to ensure that finally there was no revenue leakage and full compliance of the TDS provisions was made ultimately. We find that order of Ld. CIT(A) is devoid of any factual narration and, therefore, we find it appropriate to send this issue back to the file of the CIT(A) for complete factual analysis and thereafter applying the correct position of law. Ld. CIT(A) shall provide adequate opportunity of hearing to the assessee. The assessee shall also extend requisite cooperation to the Ld. CIT(A) by filing necessary details / evidences so as to bring complete facts on record. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... years on the same terms and conditions as applicable for the initial period, as per Article 18.1 of 'OMDA". Under the terms and conditions of OMDA", the assessee paid a sum of Rs. 150 crores to "AAI" as upfront fee m described under Article 11.1.1 of Chapter-XI of "OMDA" which is reproduced as under: "11.1.1 Upfront Fee The JVC shall pay to the "AAI" an upfront fee (the 'Upfront fee") of Rs. 150 crores (Rupees one hundred and fifty crores only) on or before the Effective date. It is mutually agreed that this Upfront fee is non-refundable (except on account of termination of this agreement in accordance with Article 3.3 hereof and payable only once during the term of this Agreement" Besides, above payment, the assessee is also to pay Annual Fees as per Article 21.1.2.1 for each year during the terms of the agreement. By virtue of above one-time payment of upfront fee of Rs. 150 crores, the assessee has been given exclusive right and authority to collect payment of various nature from the users of Airport premises as per Article 2.1.2(iii) of Chapter-II, subject to the Regulations prescribed under Chapter -XII. The question arises as to whether the assessee has got the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act. The Hon'ble Delhi High Court In the case of Hindustan Coca Cola Beverages Pvt Ltd (supra) has also held that the assets which are included in the definition of "intangible assets" include, along with other things, any other business or commercial rights of similar nature. In this regard, it is relevant to state that the decision of Delhi High Court in the case of ONGC Videsh Ltd (supra) has held that the assessee who was assigned the rights to participate in oil exploration in Russia through a consortium for a period of 25 years and paid the total consideration for obtaining 20% membership in the consortium, amounting to Rs. 155.9 crores, was treated to acquire a license, being intangible assets, and thus assessee was entitled to claim depreciation u/s 32(1)(ii) of the Act. The Pune bench of the Tribunal in the case of Ashoka Info (P) Ltd (supra) has also held that the expenditure incurred on construction of highway is eligible for depreciation @25%, as this expenditure has given rise to an 'intangible assets' in the hands of the assessee. In view of above decisions and the facts of the case, we hold that the Ld. CIT(A) has rightly held that the payment of upf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upported with various evidences for justifying the claim of interest and for disputing the disallowance made by the Assessing Officer. Ld. CIT(A) was satisfied with the submissions of the assessee and deleted the disallowance. Being aggrieved, Revenue is before us. 8.3. During the course of hearing before us, the Ld. CIT-DR vehemently contested the order of Ld. CIT(A) and submitted that Ld.CIT(A) has passed a very cryptic order on this issue. No proper reasoning has been given while allowing the relief and submissions made by the assessee have been blindly accepted while deciding this ground. 8.4. Per contra, the Ld. Counsel of the assessee submitted that exhaustive details were submitted but nothing wrong has been pointed out therein by the Ld.CIT(A) or by the Ld. CIT-DR and, therefore, the order of the Ld.CIT(A) on this issue should be upheld. Our attention was also drawn upon the details and evidences submitted before the Assessing Officer. 8.5. We have gone through the order of the lower authorities as well as the submissions made before us by both the sides. It is noted that the Ld. CIT(A) has passed very brief order without giving proper reasoning while allowing the relief ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the year under consideration, the assessee furnished reply before the Assessing Officer vide letter dated 20-12-2010 furnishing a statement containing item-wise details of apportionment of indirect expenses after making analysis of the details furnished by the assessee. The Assessing Officer was of the opinion that the assessee had omitted to apportion expenses incurred on legal and professional charges amounting to Rs. 19.22 crores. As per the Assessing Officer, a portion of these expenses was prima facie allocable to capital work-inprogress. Thus, after deducting a sum of Rs. 19,22,000 (i.e. depreciation @10%, the Assessing Officer allocated balance amount of Rs. 1,72,98,000 towards capital expenses out of the total legal and professional charges claimed by the assessee. 9.2. Being aggrieved, the assessee filed appeal before Ld. CIT(A). The assessee made detailed submissions, and accepting the same, Ld. CIT(A) deleted the disallowance made by the Assessing Officer. 9.3. Being aggrieved, the Revenue is before us. During the course of hearing, it was vehemently argued by the Ld. DR that on this issue also, the Ld. CIT(A) has decided the issue in a highly cryptic and non-speak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isallowance of the provision for leave encashment of Rs. 13,782,831/made on the basis of an actuarial valuation by relying on the decision of Calcutta High Court in the case of Exide industries Ltd. v Union of India (292 ITR 470). The appellant prays that the same may be allowed. Ground No. 3: On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in conf irming the stand of A.O. that the Passenger Service Fee - Security Component [PSF(SC)] of Rs. 1,32,58,59,023/- forms part of the taxable income of the appellant. The appellant prays that PSF (SC) is not the income of the appellant. Hence, the addition on this account may please be deleted. Ground No. 4: On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in restricting the depreciation al lowance to 10% as applicable to Buildings instead of 15% as appl icable to Plant and Machinery, on the expendi ture incurred by the appellant on taxiways , taxi track and parking bays." 12. Ground 1 : In this ground, the assessee has challenged the action of Ld.CIT(A) in confirming the action of Assessing Officer in making disallowing Rs. 60,20,500 u/s 14 r.w.r 8D of the Act. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considered to be NIL. 2. Payroll costs are as follows: AVP Finance -5% of his CTC for 8 months, as investment activity done from August, 2008 1,00,000 Mgr.(Fin) - 5% of his CTC for 8 months as he has been appointed since January,2008 12,500 Total A 1,12,500 3. Other administrative costs are app. 50,000 Total B 1,62,500 AO did not record any satisfaction about the correctness of the claim or otherwise having regard to the accounts of the assessee. We find that this issue is no more res integra. In the case of Ashish Jhunjhunwalla (supra) authored by one of us, i.e. Hon'ble JM, Hon'ble Kolkatta Bench of the Tribunal after considering umpteen number of judgements available on this issue, held as under :- "6. We find from the facts of the above case that the AO has not examined the accounts of the assessee and there is no satisfaction recorded by the AO about the correctness of the claim of the assessee and without the same he invoked Rule 8D of the Rules. While rejecting the claim of the assessee with regard to expenditure or no expenditure, as the case may be, in relation to exempted income, the AO has to indicate cogent re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this case and he would have no objection if this issue is sent back to the file of the AO. 13.5. We have gone through the orders passed by lower authorities on this issue. It is noted that none of the authorities have narrated proper facts as to whether the total amount debited under this head was on account of provision or some part of it was paid also. Further, it is also not coming out whether provision for leave encashment has been made on the basis of actuarial basis or not. In our view, this issue needs to go back for proper verification of facts, and therefore, we send this issue back to the file of the AO for proper adjudication after considering all the facts and the judgments in this regard for which the AO shall give adequate opportunity of hearing to the assessee. The assessee shall submit requisite details and documentary evidences to bring complete facts on record and place all the judgements as may be considered appropriate as per law and facts. The AO shall decide this issue afresh after taking into account all the material held on record and all the judgements as available at that time on this issue. This ground may be treated as allowed for statistical purpose. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount as part of its taxable income mainly on the ground that the aforesaid amount had no attributes of income as far as taxability of the same was concerned in the hands of the assessee company. But Ld. CIT(A) did not agree with the submissions of the assessee mainly for the reason that MOCA (Government of India) had issued guidelines clarifying that PSF-SC was taxable in the hands of the assessee notwithstanding that the aforesaid receipt was fiduciary in nature in the hands of the assessee. 14.3. Being aggrieved with the order of the Ld. CIT(A), the assessee is before us. During the course of hearing before us, the Ld. Counsel of the assessee made exhaustive arguments to impress upon the point that the impugned amount collected by the assessee from the passengers on behalf of Ministry of Civil Aviation, Government of India (MOCA, for short) was not in the nature of income and thus not taxable in the hands of the assessee. It was thus summarised that the impugned amount was not income of the assessee in view of well established doctrine of 'diversion of income by overriding title'. In support of his argument, the Ld. Counsel relied upon the following judgements: 1. CIT vs Salem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ra, the Ld. CIT-DR submitted that after detailed discussion during the assessment proceedings, the assessee himself offered this amount for tax and also submitted that in this case the CBDT and MOCA have already expressed their opinion vide their notification that the impugned amount is taxable in the hands of the assessee company. He submitted that office memorandum issued by CBDT cannot be challenged in the court of law. 14.5. In the rejoinder, the Ld. Counsel reiterated his submissions and also relied upon the judgment of Hon'ble Supreme Court in the case of UCO Bank 237 ITR 889 (SC) and also submitted that assessee is not rendering any security services but only acting as a conduit by collecting the impugned amount on behalf of the government and disbursing it for security purposes strictly in accordance with the rules, regulations and guidelines of the concerned authority and therefore, under these circumstances, the impugned amount could not have been brought to tax in the hands of the assessee and therefore, the addition made by the AO should be deleted. 14.6. We have gone through the orders passed by lower authorities, submissions made and documentary evidences produced b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be utilised for payment to security agency designated by the central government for providing security services at airport and the said component was called as Passenger Service Fee-Security Component (in short referred to as PSF-SC). The said portion i.e. Rs. 130/- (65% of PSF) was deposited in an 'Escrow Account' pending utilisation. 14.9. During the year under consideration, the assessee included passenger facilitation component of PSF (i.e. Rs. 70/- being 35% of PSF) as income of the assessee company. But the balance amount of Rs. 130/- (i.e. 65%) portion was kept in separate 'Escrow Account' for which separate books of account were maintained in accordance with the Standard Operating Procedure (SOP) formulated by MOCA and, therefore, the same was not included in the income of the assessee company. The assessee company did not include revenue pertaining to PSFSC as well as the corresponding expenses in the financial statements of the assessee company. During the course of assessment proceedings, the AO confronted to the assessee, an Office Memorandum issued by CBDT to MOCA and clarification from MOCA wherein it was stated that PSF - SC was also taxable in the hands of asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence is made on the landmark judgment of Hon'ble Delhi High Court in the case of CIT vs Bharat General Reinsurance Co Ltd 81 ITR 303 (Del.) Relevant portion from it is reproduced below: "It was true that the assessee itself had included that dividend income in its return for the year in question, but there was no estoppel in the Income-tax Act and the assessee having itself challenged the validity of taxing the dividend during the year of assessment in question, it must be taken that it had resiled from the position which it had wrongly taken while filing the return. Quite apart from it, it was incumbent on the income-tax department to find out whether a particular income was assessable in the particular year or not. Merely because the assessee wrongly included the income in its return for a particular year, it could not confer jurisdiction on the department to tax that income in that year even though legally such income did not pertain to that year. Therefore the income from dividend was not assessable during the assessment year 1958-59, but it was assessable in the assessment year 1953-54. It could not, therefore, be taxed in the assessment year 1958-59." 14.11. Our view is fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 11-4-1955. 14.14. In the case of Nirmala L Mehta vs CIT 269 ITR 1, Hon'ble Bombay High Court, relying upon Article 265 of Constitution of India held that acquiescence cannot take away from the taxpayer, the relief he is entitled where tax is levied or collected without authority of law and, therefore, merely because the taxpayer offered a receipt to tax, that cannot take away its right in contending that the said amount was not chargeable to tax. 14.15. In the case of Balmukund Acharya vs DCIT 310 ITR 310 (Bom), Hon'ble Bombay High Court observed that the Apex Court and various High Courts have ruled that authorities under the Income-tax law are under an obligation to act in accordance with law. Tax can be collected only as provided under the Act. If an assessee, under a mistake, misconception or not being properly instructed is over assessed, the authorities under the Act are required to assist him and ensure that only legitimate tax dues are collected. If any item of receipt is not taxable under the Act, then tax cannot be levied applying the doctrine of estoppel. The Hon'ble High Court considered the aforesaid judgements while expressing its opinion. 14.16. In the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laying down accounting / audit procedure in respect of PSF-SC. It was intended to act as Standard Operating Procedure (SOP) for accounting / audit of PSF-SC by the airport operator. In the aforesaid document, the whole procedure was duly explained how the amount has to be collected and to be kept in escrow account and to be disbursed for the purpose of security. Relying upon the Office Memorandum issued by the CBDT dated 30-06-2008, it was mentioned therein that the tax component may be charged to the PSF-SC account in proportion to its liability on standalone basis. The assessee was of the opinion that the aforesaid amount was not taxable in the hands of the assessee company, and therefore, while filing the return the same was not included in the taxable income by the assessee. But during the course of assessment proceedings, the AO was of the opinion that the said amount was taxable in the hands of the assessee in view of Office Memorandum of CBDT dated 30- 06-2008 and instructions dated 19-01-2009 issued by MOCA. With a view to clarify the situation, representation was made before the CBDT as well as MOCA. In response, MOCA issued a letter dated 15-11-2010 wherein it was stated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hiniyam, 1964. The Revenue treated the amount so collected by the agent as part of its taxable income being a trading receipt in view of judgment of Hon'ble Supreme Court in the case of Chowringhee Sales Bureau vs CIT 87 ITR 547 (SC), supra. After analysing the facts of the case, it was held by the Hon'ble Court that the market fee realised by the commission agent does not form part of his trading receipt as he (the commission agent) held this amount only as a trustee for and on behalf of the Market Committee. Hon'ble Court applied the judgment of Hon'ble Supreme Court in the case of CIT vs. Sitaldas Tirathdas 41 ITR 367 (SC) and distinguished that of Chowringhee Sales Bureau P. Ltd. vs. CIT, supra. 14.20. Thus, at the outset, it is clearly visible that both the authorities expressed their opinions without proper application of mind and without examining the nature of impugned receipt within the framework of provisions of Income-tax Act, 1961. 14.21. Apart from that, the binding effect of Office Memorandum issued by CBDT, clarification issued by MOCA is also under question. It has been argued that it has been held by Hon'ble Supreme Court many times that circulars issued by the B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these have been held to be not binding upon the CIT(A) as stated above. Therefore, there is no question of there being any binding effect upon the Income-tax Appellate Tribunal of any such communication issued by the Board. 14.23. It is noted by us that this issue is not res integra, as it has been settled by Hon'ble jurisdictional High Court and Hon'ble Supreme Court in many cases. It was held by Hon'ble Bombay High Court in the case of Banque Nationale De Paris vs CIT (supra) that circulars cannot override or detract from the provisions of the Act in as much as section 119 of the Act has empowered the CBDT to issue orders, instructions or directions for the proper administration of the Act. Hon'ble High Court has taken into consideration various earlier judgments of Hon'ble Supreme Court on this issue. Similarly, the Hon'ble Supreme Court in the case of CIT vs Hero Cycles Pvt Ltd (supra) held that circulars can bind the Income-tax Officer but will not bind the appellate authority or the Tribunal or the Court or even the assessee. It is further noted that law in this regard was further analysed by Hon'ble Supreme Court in the case of UCO Bank (supra). It was observed by the Hon'b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing security expenses can be characterised as income in the hands of the assessee company and made liable to tax in its hands. 14.26. The brief facts related to the issue have already been narrated by us in earlier part of our order and just to recapitulate the relevant part of it, the licensee of an airport in terms of provisions of Rule 88 of Aircraft Rule, 1937, is responsible for collecting a fee from embarking passengers referred to as Passenger Service Fee (PSF) @ Rs. 200/- per ticket. Portion of PSF being 35% was on account of providing passenger facilitation and was to be retained by the airport operator for providing passenger related services and the balance 65% of PSF represents security component to be utilised for payment of security agency, i.e. CISF, who is designated by the Ministry of Home Affairs for providing security services. The assessee had included aforesaid 35% portion in its income but did not include PSF-Security Component in its income while filing the return of income. The dispute before us is with regard to this PSF - SC. Further facts brought out before us are that the assessee had collected during the year, total amount of Rs. 180.27 crores on accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Ministry of Civil Aviation on 15.11.2010, the appellant had no other option, but to offer the receipts to tax for A.Y. 2008-09. Thus, as stated by the appellant on merits and in law that although the receipts of PSF (SC) in the hands of the appellant do not partake the character of income and by the 'Doctrine of Overriding Title' as they are to be utilized for security purposes-the issue being highly debatable and a legal difference of opinion being there the same has been offered for taxation. Hence I confirm this addition by the A.O. and thus, this ground of appeal is dismissed." 14.28. It is noted by us that both of the authorities got influenced and swayed away with the opinion expressed by the CBDT/MOCA and admission made by the assessee under certain circumstances emerged during the course of assessment proceedings. Thus, both the authorities abstained from effectively and independently adjudicating the taxability of this amount as per of law in the hands of the assessee. Since related material and all the facts are before us, we shall determine characterisation and taxability of the impugned amount in the hands of assessee-company purely as per law applicable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eferred to the Ministry, of Civil Aviation whose decision will be treated as final and binding on both parties. 2. The new procedure will be effective from 01.042006. 3. This issues with the approval of the Minister of State for Civil Aviation (Independent charge)." 14.31. Subsequently another order was passed by MOCA dated 20th June, 2007 wherein it was inter alia clarified that security component of PSF was not regular revenue of the airport operator and the aforesaid amount will be utilised at the airport concerned only to meet security related expenses of that airport. Relevant part of the order is reproduced below:- "ORDER Sub: Collection of Passenger Service Fee (PSF) at Greenfield / Private airports - regarding. In this Ministry's Order of even no. dated 09.05.2006 on the subject noted above, the following modifications may be made- (a) Clause (iii) is modified as under- "The amount of PSF to be collected will be fixed by the Ministry of Civil Aviation. However, after Airports Economic Regulatory Authority (AERA) becomes functional, PSF will be fixed by AERA. The amount will continue to be Rs. 200/-. per embarking passenger till further orders'. (b) Clau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... / audit of Passenger Service Fee (Security Component) by the airport operators. The aforesaid order contained whole procedure in detail for collection and disbursement of the said amount. Relevant portion of the same is reproduced hereunder, for the sake of better clarity on facts related to conditions attached with regard to collection and disbursement of the aforesaid amount: "2. Nature of Security component of PSF: 2.1 Aviation security is an activity reserved for the Government of India. Force deployment at the airports, security requirements including the requirement of capital items and specifications thereof are laid down by the Government/Bureau of Civil Aviation Security (BCAS). As stated above, PSF is levied under Rule 88 of the Aircraft Rules, 1937 and covers security component as well as facilitation. While the fee is collected by the license of the airports, i.e., the airport operator, through the airlines, the security component thereof, which constitutes 65% of the total amount, can be used only in terms of directions issued by the Government/ BCAS, from time to time. The amount collected by the airport operator, which is kept separately in an escrow account, is t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... collected by the airport operator is to be kept separately in 'Escrow Account' and the same is held by the airport operator in fiduciary capacity. It becomes further clear that the amount of any surplus left in the said account could not have been utilised for any purpose other than security related expenses. Under these circumstances, it was clearly not having any characteristics of income in the hands of the assessee company. The said SOP also contained certain guidelines with respect to taxability of the impugned amount. In our view, MOCA is not the designated authority to determine the taxability of the said amount as has also been discussed by us in detail in earlier part of our order and, therefore, to that extent, the observations or guidelines issued by MOCA exceed its jurisdiction and, therefore, these were not binding upon the assessee. The assessee was, of course, bound by remaining position of the guidelines as per concerned rules & regulations. 14.35. It has further been argued before us that the impugned amount would not be income in the hands of the assessee company in view of the Doctrine of 'Diversion of Income by Overriding Title'. Few judgments have been relied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ur tests to find out whether in a given situation, it would be a case of diversion of income by overriding title or not. The Hon'ble Court, after analysing various other judgments suggested following principles:- (i) If a third person becomes entitled to receive an amount under an obligation of an assessee even before he could claim to receive it as his income, there would be a diversion of income by overriding title but when after receipt of the income by the assessee, the same is passed on to a third person in discharge of the obligation of the assessee, it will be a case of application of income by the assessee and not of diversion of income by overriding title. (ii) If income does not result at all, there cannot be a tax, even though in book-keeping, an entry is made about the hypothetical income which does not materialise. (iii) The existence or absence of entries in his books of account cannot be decisive or conclusive in the matter. (iv) The concept of real income must be applied in appropriate cases but with circumspection and must not be called in aid to defeat the fundamental principle of law of income-tax as developed. 14.39. Turning back to the facts of the case be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Madras High Court in the case of CIT vs Salem Co-operative Sugar Mills Ltd (supra). The facts in this case were that the said assessee was a cooperative society, carrying on business of manufacturing and sale of sugar and in terms of Molasses Control (Amendment) Order dated 06-02-1972, transferred a sum in conformity with the statutory obligation cast by the above order and claimed it as deduction in the computation of its total income for the assessment year 1975-76, which was disputed by the Revenue but allowed by the Tribunal. Hon'ble High Court affirmed Tribunal's order and observed that even before collection of the amount as directed by the Central Government under the Molasses Control ('Amendment) Order, the assessee was directed to keep this amount under a separate account under the head "Molasses Storage Fund". Though, the assessee collected this amount under the statutory obligation, it did not belong to the assessee, but to the molasses storage fund. The assessee could not utilise the amount lying in the said fund for any other purpose. The amount was to be utilised for the purpose of constructing a storage tank in accordance with the specifications given by the Cent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was huge deficit, meaning thereby, the expenditure was more than the amount of collection. As per the terms of SOP issued by MOCA, if ultimately there was some deficit, then it was required to be funded by Government of India, and if there was ever any surplus (i.e. unspent amount), it was to be transferred to the account of Airport Authority of India (AAI). Thus, viewed from this angle also, there was no question of there being any income in this exercise, much less, any income, which could be characterised as taxable income in the hands of the assessee company. Thus, we have no hesitation in holding that the aforesaid amount is not taxable as income in the hands of the assessee company. The AO is directed to recompute the income of the assessee accordingly. The AO has also the liberty to examine that no portion of amount collected by the assessee on account of PSF-SC is utilised by the assessee for its own purposes or for any purposes which are not permitted by MOCA/other competent authorities. In case any violation is done by the assessee in this regard, then the AO will be at his liberty to treat the amount so misappropriated as income of the assessee but to that extent only. F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Ld. Counsel that CIT(A)'s order for A.Y. 2007-08 had reached upto the Tribunal, wherein the Tribunal had allowed the claim of the assessee by holding that the assessee is eligible for depreciation @15% applicable to plant and machinery on these structures. 15.4. Per contra, the Ld. DR relied upon the orders of lower authorities and did not make any distinction in facts between the assessment years 2007-08 and 2008-09. 15.5. We have gone through the orders passed by lower authorities. From the details brought before us, it is noticed by us that the assessee had incurred an aggregate amount of Rs. 17.52 crores on taxi ways, aprons and runways. It is noted that similar expenditure was incurred by the assessee in A.Y. 2007-08 and depreciation as applicable to plant & machinery was claimed but the same was denied by the AO as well as by the CIT(A). The matter reached upto the Tribunal and Tribunal, vide its order dated 14-03-3024 in ITA No.7111/Mum/2011 held as under:- "31. We observe that the assessee in the return filed has treated the asset as of part of building and claimed depreciation at the rate of 10%. AO has accepted the claim of assessee. However, while filing the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ders of authorities below. He submitted that assessee itself has claimed depreciation at the rate of 10% in the return as applicable to building. 35. We have carefully considered the orders of authorities below and submissions of ld. Representatives of the parties. There is no dispute to the facts that runway, taxiway are necessary part of Airport operation and are specific part of infrastructure for use of aircrafts. These are not merely concrete structures. The Hon'ble Bombay High Court in the case of CIT V/s Mazagaon Dock Ltd (1991) 191 ITR 460(Bom) has held that dry dock and wet dock created for ships are to be treated as plant and not building. The Hon'ble Apex Court has held in the case of Karnataka Power Corpn. (supra) that power generating station building is not a simply concrete structure but a specially designed building and is to be treated as part of plant. Similarly, the Hon'ble Apex Court has held in the case of Dr. B. Venkata Rao (supra) that the operation theatre in an hospital building is not simply a concrete structure but 30 necessarily a part for running of the hospital and the assessee is entitled to claim depreciation as applicable to plant and machinery. I ..... X X X X Extracts X X X X X X X X Extracts X X X X
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